Time to Revise Naya Pakistan Certificate Fees



The story of Pakistan’s (lack of) economic growth has become an academic case study of how not to govern.

The problems are many, but the (un)availability of the dollar is at the top of the rankings. The party’s economic hangover led by remittances has yet to wean policymakers off the inflows to focus on competitive ways to earn dollar assets. Ultimately, it comes down to attracting foreign direct investment (FDI) and value-added exports of goods and services.

Our record in both areas of expertise is dismal. Maybe overseas Pakistanis can bail out again.

Clearly demonstrating the one-handed steering of the economy, remittances rose to $31 billion in FY22 from just $9 billion in 2010. Meanwhile, exports of goods grew at a less than desired rate, from $19 billion in 2010 to $32 billion. Last year.

There seems to be a moral hazard for policy makers to outperform; with a bleak economic outlook, quality labor would emigrate/be employed overseas and add an additional source of remittance growth to partly fund import growth. Lucky, but not great! Can we channel funds more efficiently? Yes.

The feather in the cap of the SBP team, led by Dr. Reza Baqir, was the advent of the Roshan Digital Account (RDA). Nearly two-thirds of entries are channeled through Naya Pakistan Certificates (NPC).

Offered in conventional and Sharia-compliant versions, these instruments generated gross inflows of $3.1 billion. Annual profits in dollars range from 6.5% to 7% while those in rupee yield from 10.5% to 11% for a duration of one to five years. Initially, quite attractive but it is time to revise the price upwards.

Pakistan’s policy rate was tightened sharply, from 7% to 15% in 10 months, from September 2021 to July 2022, to address emerging economic imbalances. Similarly, the Libor rose from 0.25% to around 3% over the same period.

An upward revision of 8% of rupee-denominated debt and 2.75% of dollar-denominated debt has yet to be reflected in NPC profit rates. Whether it is a simple lack of attention to other limiting factors is difficult to determine at this stage.

Raising rupee NPC profit rates to 14% and dollar NPC rates to 9% can easily net Pakistan another $2-3 billion a year.

To provide other alternatives, a floating instrument (linked to a benchmark) can be introduced to alleviate concerns about swinging returns. The government must adjust to the new normal of the national and global economic outlook.

The new government, as well as the circles of power, had to run from pillar to post (from castles to deserts?) to obtain commitments to the IMF program. Although IMF validation is a must, problems can also have ready-made solutions.

Additionally, if the government is under pressure not to take on new debt – as if the Arab Friends Energy Credit Facility and notional deposits were not debt – Pakistan can launch infrastructure/ESG funds /green for overseas Pakistanis.

There are many projects critical to Pakistan’s economic security – Railways Main Line (ML-1), Hyderabad-Sukkur Motorway, Bhasha and Dasu dams, solar parks, tech/health cities – requiring funding and investor participation from detail to partially finance the hybrid model. , which can generate socio-economic benefits.

Nevertheless, caution should be exercised. In a world where rates were previously extremely low, many prominent investors leveraged (borrowed) to invest in NPC. To limit these trade-offs, limits can be placed on individual or family exposure to ensure equality and avoid abuse. Although financial sharks would still find ways to innovate.

Similarly, variable profit ranges can also be structured for infrastructure mega-projects to attract investors for equity participation instead of fixed debt.

With the changing of the guards in the SBP and the federal government, there is hope that policies will be further refined in the interest of the country until the next general election. Until we structurally steer the economy towards an export-oriented society, debt reduction and fair tax payment, the burden should be borne by overseas Pakistanis. A structurally inefficient economic structure prompted many people to leave the country. They can leave whenever they want, but they can never leave.

The author is an investment scholar with a keen interest in political economy

Published in The Express Tribune, August 29e2022.

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